Garuda management accused of $1 billion fraud

An independent watchdog in Indonesia has accused Garuda''s management of participating in a $1 billion fraud involving mark-ups on aircraft leasing agreements.

Garuda Indonesia has suffered losses to the tune of $1 billion since 1989 as a result of mark-ups on aircraft leasing agreements agreed by senior management at the airline, according to Indonesia Corruption Watch (ICW), an independent watchdog. The Indonesian flag-carrier's management colluded with officials at Merpati Nusantara Airlines and private financing firm Sakanusa Dirgantara to arrange the deals, ICW adds. An investigation into the matter is under way.

This latest corruption allegation may further hamper Garuda's efforts to agree a restructuring of its $1.8 billion debt with creditors. Originally, the airline aimed to have a restructuring agreed by end-April, but this deadline fell by the wayside. In late May, Garuda vice-president A. Tijkman said he expected any deal would involve the transfer of four subsidiaries - Garuda Information System, Garuda Medical Centre, Garuda Aviation Training and Garuda Maintenance - to the more than 70 creditors owed money by the airline.

Garuda is being advised on its restructuring by Deutsche Bank and a Lufthansa unit. If all goes to plan, the company will have an initial public offering of its shares in 2003. The Indonesian government last year agreed to pay $62 million a year for eight years so Garuda could honour its lease agreements on 18 aircraft.


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